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China Bubble Looking Ever More Ominous
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    “China Bubble Looking Ever More Ominous”


  • Gary Hemminger

    I am betting it will take many years, even decades for this balloon to burst. But burst it will. Expecting leaders of democracies, socialist countries, or authoritarian regimes to be the grinch that takes away the punch bowl is expecting too much. Neither of them will do it. They will push the ball to someone else. You can blame the leaders, but it really isn’t their fault. They are just weak. The winers who cry like babies every time their punch bowl is removed are the real problem.

  • Anthony

    “China has become the whipping boy…Just as Japan was some 15 years ago. This certainly is intellectually wrong.” (dated quote by Donald Trump’s nominee for Secretary of Commerce: Wilbur Ross) Something related for the insterested:

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      Link not working….

      • Anthony

        Yes, I know and was just preparing to erase Politico link. You can access article @ politico. Title is Wilbur Ross love affair with Chinese by Ben Schreckinger.

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          Found it, Anthony!


          • Anthony

            Semiotic, as they say “you’re the man” and you’re welcome.

      • Anthony

        I sent you information upon receipt of reply but I’ll resend: The title of article is “Wibur Ross Chinese love affair” by Ben Schreckinger in Politico Magazine (1st reply acknowledged link failure – obviously lost in cyber space).

  • Dhako

    I let you on a little secret. And that is: first, the Chinese leadership is well aware of the reform they need to do. And in fact, it’s not for lack of courage (or want of a courage) that had delayed a decision to reform the debt-financed state-owned enterprises (SOEs). However, due to the private-led sector, and consumption side of the economy who needed a few years to become a self-sustaining engine before a major surgery on the SOEs (particularly on the export-led sectors of the economy) wasn’t complete, meant that 2014/2015/2016 wasn’t years such a reform could be enacted.

    And that means, the investment and financed-driven stimulus poured into state sector (i.e., SOEs) was the preferred option till the private sector works it’s balanced-sheet debts into a sustainable level. And now, since the private sector is doing good as it could be expected, then the major reform on the state sector will commence this year of 2017, after the party congress, which will be when the second term of President Xi begins and a new economical team (under a new premier or Prime-Minister) is appointed to the State council (i.e., the Cabinet). Hence, if you thought, the Chinese were paralyze by polling numbers or opinion, you couldn’t be more mistaking.

    In other words, the Chinese economy has a two-stool engine. And they are a private sector which is dominated by the new economies, such as the techs companies, the e-commerce behemoths and service/consumption/retails side of the economy. And public sector dominated by the old heavy manufacturing and export-orientated side. Subsequently, the Chinese state decided back in 2012/13 to allow the private sector to work its way out of their balance-sheet debts while allowing the state to keep adding on the stimulus on the state sector in-order to carry the growth of the whole economy, since, the private sector wasn’t doing that due to the deleveraging it was going through.

    And now, since, the private sector is a rude health, now, time has come for the state sector to have go go through a major re-organisation and deep surgery that will last hopefully between 2017 -2022. This is what the China will be doing, so safe your ill-deserved gloating on China’s behalf, since, before the year is out you will see China doing what it does best, which is basically settle it’s house in orders, unlike the US, who will forever debate whether US should have a national health-care, and even proceed to dismantle the ones that exist already in the books, such as the Obama-Care without having a faintest clue as to what to replace it with it, which is what we will see under Trump’s administration.

    • life form

      Half of that post is pie in the sky nonsense. Wishful fantasy.
      Provincial governments were under terrific pressure from Beijing to produce growth, and they did. With either private or SOE as tools, they encouraged tremendous growth, and got it.
      But, the return on investment has been, overall, terrible. Many of these enterprises will never be solvent, and the debt created to finance the growth cannot be paid. Ghost cities are the oft used example. That’s your debt bubble.
      (The pollution has also been incredible, and will take half a century to clean, if China started today. The CCP itself targets 2035 as the year pollution will stop getting worse.)
      Forex reserves have depleted by 25%, Beijing should not and cannot spend enough to bail out these unprofitable enterprises. The 3 trillion remaining is not enough, and spending it would be throwing good money after bad.

      Rolling over debt, injections of money, and currency tinkering are decreasingly useful as tools to support this debt. Hence the coming reckoning. Beijing can have all the meetings it wants, and declare whatever party line it wants people to repeat, but it isn’t going to make the bad debt and and the bad return on investment disappear.

  • Andrew Allison

    Do you really think that Trump gives a flying you-know-what about polls?

    • Jim__L

      I suspect he cares about whether or not the crowd is cheering.

      • Andrew Allison

        Exactly. That’s how and why he’s the President-elect, and exactly as it should be. As he demonstrated, the polls (and the pols) are irrelevant blathering.

        • Jim__L

          Thinking about it more carefully though, I think perhaps Trump cares most about whether the crowd thinks he is awesome — whether they’re cheering or not.

  • Jacksonian_Libertarian

    90% of China’s success over the last 40+ years is the foreign investors that built state of the art factories in China to take advantage of the Cheap Chinese Labor and Potential 1.3 Billion new consumers, and the other 10% was currency manipulation that gave Chinese exporters an unfair price advantage. Now that the smart money is gone, what does China have left? It doesn’t make anything that can’t be made elsewhere at much less risk. I challenge anyone to name a world class Chinese brand name like Sony, Toyota, Samsung, Kia, Microsoft, Google, Intel, Apple, etc… So, over 40 years since the fall of the Iron Curtain and China still doesn’t understand Capitalism enough to allow the “Feedback of Competition” to drive improvements.

  • champ

    The Chinese Communist Party struck a deal with the Chinese public back when Deng Xiaoping succeeded Mao as the leader of the CCP. The deal was that, in return for public support, the CCP would adopt policies that would increase China’s GDP by at least 7% per year. CCP leadership fears that if they fail to deliver that targeted growth, the masses will revolt against their leadership. So, you have the local, provincial, and national leadership creating all kinds of asset bubbles (e.g., vastly overbuilt housing that sits vacant) to make it look like they are achieving the growth targets. Few western economists believe the GDP growth numbers that the Chinese government tout these days. Some day soon it will all come crashing down.

  • donqpublic

    Surely you jest in asserting the central banks, including the Fed, are not political and let the “mark to market” chips fall where they may to promote price stability and full employement?

  • mf
  • Disappeared4x

    Considering China’s worldview, in which all other nations are tributary to the Middle Kingdom, are the opinions of IMF economists, or the WSJ, more than a gnat on the Great Wall? Not likely.

  • A one-party political system has the same major deficiency that a planned economy has: a lack of proper signalling between the consumers and producers. In a planned economy, the producers of goods and services must use means other than prices to determine what the consumers want. No alternative for signalling such wants has come close to free-market pricing. This lack of proper signalling oftentimes leads to economic crisis.

    While there is no signalling mechanism in politics that is quite as effective as free-market pricing is in an economy, the two best so far developed are free and fair elections and free speech. Free and fair elections permit the setting of policy preferences by the consumers of political activity to the producers of such activity, and free speech permits such consumers to signal a desire for mid-course corrections or for reinforcing chosen options.

    The producers of China’s political activity not only do not take advantage of these mechanisms but they actively discourage their existence as a threat to, well, many things. And just like an economy that lacks adequate signalling from the consumer to the producer often suffers from crises, so does a political system without such signalling. Politics is far more forgiving than economics, so such crises happen by nature less frequently in politics than in economics. Political producers can also use other political tools (e.g., repression, propaganda, appeals to patriotism, blame-shifting, etc.) to put off such crises, but putting them off is all they accomplish. Eventually the lid will blow if reform toward a political system with adequate signalling is not made.

  • Curious Mayhem

    China got massive growth for a generation with investment leading, first for export to the developed world; then an infrastructure building mania. The developed world is now growing too slowly to serve as a decent export growth opportunity any more.

    The infrastructure mania might have led to something more significant, China transitioning to a more consumption-led economy, whereby the artificially high savings rate is let to fall and the Chinese enjoy a higher standard of living. Alas, this conflicts with all the entrenched special interests in the Chinese system that need to keep the infrastructure mania and the lagging export machine going. And it conflicts in a more profound way with the CCP’s need to control the population — artificially low consumption is a powerful tool of political repression. Think the CCP is going to give that up?

    (Add to those the just-starting-to-bite impact of the nearly 40-year-long one-child policy. Migration from the countryside to the cities stopped several years ago, and the Chinese work force is now shrinking. It’s Japan, but stalling out at a lower economic level.)

    So, China will blow up at some point. Its financial system is, thankfully, not strongly connected with the rest of the world. The main shock will be through the yuan, which has to continue declining, pace Trump. It’s already past its peak, and anyone in China with money trying to get it out.

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